To foster economic growth through innovation, regions need to develop "innovation clusters" that draw on collaboration between four key sectors: public, private, civil (non-profit), and academic. Successful clusters like Silicon Valley and Bangalore were able to thrive due to strong networks between these sectors. However, many attempts at creating clusters fail because they focus only on one or two elements, rather than developing deep collaboration across all four sectors, known as "the quad". Truly innovative regions require cross-sector networks, organizations willing to reform themselves, and investments in talented individuals across the quad.

1. strategy+business
issue 66 SPring 2012
reprint 12103
by erneSt J. WilSon iii
How to Make a
Region Innovative
To foster economic growth, innovation clusters
need to draw on the power of an interrelated “quad”
of sectors: public, private, civil, and academic.

2. INNOVATION
by Ernest J. Wilson III
I
n 1893, J.R.N. Tata, the found-
er of Indian multinational
company Tata, and the maha-
raja of Mysore met by chance on a
ship sailing from Japan to Chicago.
They agreed that science would be
the path to successful moderniza-
tion of India. During the following
years, Tata donated money and the
maharaja donated 370 acres of land
in order to build a “science city”
near a town then called Bengalaru,
which had recently been struck by
a devastating plague. The result
was the Indian Institute of Science
(IISc), which soon became one of
the world’s great centers of science
and technology education (and re-
mains so today). In the ensuing de-
cades, graduates established other
science-related enterprises nearby.
After World War II, the government
of India located its nuclear science
program in the area, and an Indian
space program followed.
By the 1980s, new businesses
began emerging there, including
Infosys (today the second-largest
exporter of IT services in India).
Bangalore, as the growing city was
now called, became a center of com-
mercial activity. It filled with ambi-
tious entrepreneurs and engineers,
who used new, technologically so-
phisticated business models to serve
global clients. Yet for all its accom-
plishments, the city lagged behind
Silicon Valley in the United States.
Bangalore seemed to have the
right ingredients: It had many com-
panies and banks, both established
and startup; a relatively efficient
local government with ties to the
private sector; a large network of
nonprofit organizations and cul-
tural institutions, and a group of
renowned schools and institutes, of
which IISc was just one. Yet even
with all these conditions in place,
one more development was needed
before Bangalore could bloom. This
was the dramatic shift by the nation-
al government in 1990 away from
the all-encompassing “license raj”
regulatory regime that had stunted
Indian growth rates for decades.
Once these punishing levels of gov-
ernment controls on business were
swept away, and relationships be-
tween national government officials
and new business leaders became
less antagonistic, entrepreneurship
reached a critical mass. Bangalore
businesses accelerated their climb up
the value chain toward product and
service innovation.
The Bangalore story is not
unique. The same scenario is
found in California’s Silicon Val-
ley, Shanghai’s new high-tech cen-
ters, Boston’s Route 128, Seoul’s
Digital Media City, the biotech cor-
ridors around Washington, D.C.,
and the pharma region near Basel,
Switzerland. Other regions, seeking
to emulate the prolonged success
and influence of Silicon Valley in
particular, have been less success-
ful; their investments have not paid
off. Most of them pursue a formula
that was codified by strategy writer
Michael Porter in his book The
Competitive Advantage of Nations
(Free Press, 1990). They set out to
create an “innovation cluster,” as
it’s called: a network of interrelated
organizations intended to jump-
start competitive industries at a re-
gional scale.
But many efforts to generate
clusters never reach their goals. In-
How to Make a Region
Innovative
To foster economic growth, innovation clusters
need to draw on the power of an interrelated “quad”
of sectors: public, private, civil, and academic.
essayinnovation
1
IllustrationbyLarsLeetaru

3. novation researcher and Washing-
ton Post columnist Vivek Wadhwa
pointed this out in a July 14, 2011,
column. He cited a Norwegian–
British study of more than 1,600
companies in the five largest Norwe-
gian cities, all of which have cluster-
like qualities. Most of the companies
failed. This, says Wadhwa, makes
“industry clusters” the “modern-day
snake oil.”
For the last 15 years, I have
studied innovation clusters in more
than a dozen countries. My own
research findings echo Wadhwa’s
conclusion. Clusters can be vitally
important to a country’s innova-
tion and prosperity, but when they
are misunderstood, they do not re-
alize their potential. Most efforts to
create clusters focus on one or two
elements: the heroic innovators who
champion their creation, the co-
location of companies that lets en-
gineers switch jobs by crossing the
street, the business school spawning
grounds with professors sympathet-
ic to their students’ entrepreneurial
ambitions, the startups with foosball
tables in the conference rooms, or
the provision of cash from an ear-
nest government funder seeking to
bypass bureaucratic roadblocks.
These factors, no matter how
appealing, don’t make a difference
unless they can add up to sustain-
able serial innovation. To generate
one groundbreaking technological
development after another, innova-
tion must be embedded within long-
lived social institutions and net-
works. Four different sectors must
be linked together: government,
business, civil society (not-for-profit
organizations), and academia. This
is what I call “the quad.” In such an
environment, creativity needn’t wait
for the unpredictable “aha” moment.
It is continually nurtured. The deci-
sions made at every level — invest-
ment funds, corporate engineering
teams, regional planning boards,
philanthropic councils, academic
faculty reviews, and many more —
are naturally aligned.
In most communities, this quad
alignment can be deliberately devel-
oped if leaders put three measures
into effect. First, they should con-
struct cross-sector networks that are
richer, more diverse, and more delib-
erately structured than those of the
past. Building Silicon Valley took
30 years and Bangalore took 100,
but we now know how to accelerate
the process by drawing on the col-
lective efforts of leaders in all four
sectors of the quad.
Second, these leaders should
continually reform the way their
organizations are managed — creat-
ing a climate that fosters innovation,
and adjusting the incentives and
organizational structures to reward
creativity and collaboration. That’s
what venture capitalists provided in
Silicon Valley — and what the pro-
hibitively strict license raj managed
to prevent in Bangalore.
Third, leaders should invest in
talented, innovative individuals, at-
tracting, retaining, and empower-
ing the right mix of people who can
foster serial innovation. Both Silicon
Valley and Bangalore benefited from
having large demographic cohorts of
young, gifted entrepreneurs; other
places sometimes have to attract or
develop them.
Cross-Sector Networks
Collaboration between the public
and private sectors is the most vis-
ible ingredient of a successful quad
system; it represents the heart of
Michael Porter’s prescriptions. But
the variety and quality of the stake-
holders involved can make all the
difference.
Fairchild, Intel, Hewlett-Pack-
ard, Apple, Sun Microsystems, and
Cisco were essential to the evolu-
tion of Silicon Valley, but so was
the presence of great universities
such as Stanford and the University
of California at Berkeley. Frederick
Terman, Stanford provost between
1955 and 1965 (and an engineering
professor before that), is sometimes
called “the father of Silicon Val-
ley” for encouraging his students to
start businesses. Two of his students
were William Hewlett and David
Packard. Government also played a
critical role. Indeed, Terman came
to Stanford in 1946 from the U.S.
Office of Naval Research, where he
had directed the staff that developed
jammers to block enemy radar. In
the early 1960s, the U.S. military
was the market for the first wave
of integrated circuits, which were
largely made in northern California.
The nonprofit sector was less visible,
but it played a significant role in the
1990s — especially as computer
firms began to invest in clean and
healthcare-related technologies.
When all four sectors act to-
gether, they can pull and push one
another into game-changing collab-
Building Silicon Valley took 30
years and Bangalore took 100, but
now we can accelerate the process.
essayinnovation
2

4. orations, beyond what any of them
could achieve alone. The commu-
nities of practice that grow around
them become creative havens where
people build careers that transcend
any one particular company or or-
ganization. At the same time, each
plays a particular role:
• Government agencies pro-
vide the necessary infrastructure
investment — for example, in trans-
portation, schools, power transmis-
sion lines, and land — that can make
or break a would-be center of inno-
vation. In Bangalore, a government
agency built one of the first software
parks for private companies. Gov-
ernments also provide the stable
investment rules, regulatory incen-
tives, and tax breaks that clusters
need. In the U.S. in the 1990s, the
Clinton administration’s insistence
on keeping e-commerce tax-free but-
tressed the bottom line of hundreds
of innovative New Economy firms.
• Universities provide a steady
supply of highly skilled people and
experiments that feed the constant
hunger for new knowledge. Most
universities are established enough
to take a long view in their invest-
ments and activities, beyond the
quarter-to-quarter focus of many
firms. The university environment
also provides a high quality of cul-
tural life.
• Nongovernmental organiza-
tions (NGOs) — a category that over-
laps significantly with the nonprofit
sector — provide a larger contribu-
tion than many people recognize,
Ernest J. Wilson III
ernestw@usc.edu
is the Walter Annenberg Chair in Com-
munication and dean of the Annenberg
School for Communication & Journalism
at the University of Southern California
and former chairman of the board of the
Corporation for Public Broadcasting.
especially in emerging countries.
They are the groups most familiar
with conditions “on the ground”
in rural and urban communities.
The first Internet service provider in
Brazil was a nonprofit called Ibase.
Grameen Bank and other NGOs
provide rural banking and tele-
phony through microcredit. As the
financial crisis continues, NGOs are
picking up some formerly commer-
cial functions, such as retail banking
and publishing.
• Businesses provide the clus-
ter with its economic engine. Be-
cause they will close down if they
fail to innovate successfully, they
take the many risks that innovation
entails. The private sector furnishes
a large part of the capital needed to
fund strategic innovation. Most fun-
damentally, it is a unique source of
vitality and creativity, and the only
sector that attracts customers in
large enough numbers to support a
growing economy. For all these rea-
sons, business leaders have a particu-
larly important role to play in mov-
ing an innovation cluster forward.
To bring these four sectors to-
gether, a quad cluster needs to nour-
ish a high level of mutual trust.
Leaders in all four sectors must
work cooperatively, knowing that
their interests will be protected well
beyond the transaction at hand.
You can tell when this trust is miss-
ing in a prospective cluster; in those
cases, people act only on their short-
term interests, transaction by trans-
action, ready to pull out quickly
with the first faltering step. Trust
must be built gradually, through
social infrastructure such as pro-
fessional associations, social clubs,
and other forms of ongoing contact
and exchange.
In Malaysia in the mid-2000s, I
visited Cyberjaya, a new city carved
out of miles of rubber plantations.
At first glance it looked like Palo
Alto or Cupertino. But it was a
high-tech Potemkin village. Gov-
ernment leaders, under then Prime
Minister Mahathir Mohamad, were
politically heavy-handed and hos-
tile, especially toward the universi-
ties; they feared student rebellions
and faculty disloyalty. One profes-
sor told me, “Government pretends
to support serious research and
development, and we pretend to
do it.” Collaboration was further
blocked by Malaysia’s complicated
social structure. The government
was dominated by local bumiputra
(people descended from indigenous
Malaysians), whereas the economy
was run largely by ethnic Chinese,
and their relationships could be
tenuous and fraught with mistrust.
The government’s relationship with
the NGO sector was also marked
by mutual suspicion; the two sectors
were potentially competing sources
of power. As a result, Cyberjaya
has never transcended its role as a
mere electronic assembly center for
global supply chains, vulnerable to
external competition.
By contrast, one of California’s
recent economic achievements start-
ed with a deliberate effort to build
trust across the sectors. In 1999,
a group of about 20 leaders from
universities, research institutes, and
state government gathered to dis-
cuss the then sizzling state econo-
my, wondering how to spread the
jobs and other economic benefits
beyond Silicon Valley. Under the
governor at the time, Gray Davis,
the state set aside US$400 million
of seed money for high-tech R&D.
Universities and companies could
submit proposals only by collaborat-
ing. Soon, four major new consor-
tia, or quads, were formed: one each
essayinnovation
3
strategy+businessissue66

5. on biosciences and nanotechnology,
and two on information and com-
munication technologies. One of
these latter two partnerships — the
California Institute for Telecommu-
nications and Information Technol-
ogy (Calit2), based at the University
of California at Irvine (UCI) and
the University of California at San
Diego (UCSD) — was especially
successful. Its director, a physicist
named Larry Smarr, set up incen-
tives to foster greater collaboration
inside UCI and UCSD, while forg-
ing external networks with leading
private companies like Qualcomm,
Akamai, Agilent, and DuPont.
Calit2 also established relations
with nonprofit business groups like
Connect, which promotes high-
tech investments in the San Diego
area. Calit2 became a center of in-
novation for applying information
and communications technology in
healthcare, including new approach-
es for managing hazardous materials
and disaster sites. One Calit2 project
was Telios, an operating system that
uses sensors and monitors to gather
medical data, linking specialists
at UCI with patients and medical
staff in community clinics. Smarr
himself became a leading figure
in the “quantified health” move-
ment, which encourages people to
track their own medical statistics
using technologies like those that
Calit2 engendered.
The Right Organizational Climate
Because entrepreneurs are generally
open to organizational reform and
opposed to unproductive bureaucra-
cy, clusters can and should become
seedbeds for organizational innova-
tion. A successful quad system needs
organizations that are willing to
continually reform themselves, and
to collaborate on building the clus-
ter’s capabilities as a whole, spread-
ing good management practice from
one organization to another. Info-
sys, for example, has created and
spread a variety of distinctive new
management approaches, includ-
ing internal networks that seek out
ideas. The company provides a va-
riety of rewards — peer recognition
as well as money — to employees for
such proposals. Some entrepreneur-
ially minded people within the or-
ganization are put on a fast track for
promotion as a result. This practice,
unusual for India at the time it was
launched, has spread to other com-
panies in Bangalore.
Sometimes the spread of man-
agement innovation takes place
through explicit contracts: “If we
work together, then you will have
to make changes so that we can col-
laborate effectively and efficiently.”
Sometimes it happens more infor-
mally, as managers and executives
copy ideas and approaches on the fly
from their fellow quad members. It
may also occur through formalized
communication: In Washington,
D.C., the Government-University-
Industry Research Roundtable of
the National Research Council
seeks out best practices for pub-
lic–private–university partnerships,
sharing them with its members and
distributing them widely to inter-
ested parties.
Managerial innovation also
spreads through funding institu-
tions — either government-based
like the U.S. National Science Foun-
dation or nonprofit philanthropies
— which increasingly require grant-
ees to create partnerships across sec-
tor boundaries. University research-
ers, for example, may be asked to
work with local communities, the
private sector, and the media. This
in turn requires these organizations
to recruit (and learn from) people
with special skills and experience
in partnering with different kinds
of institutions. In this way, organi-
zations that are not familiar with
management reform — including
many government agencies and
universities — discover that there
are better ways to make the most of
their people and processes.
Investment in Individuals
Sustained innovation flows from the
ideas and actions of creative, capable
individuals. They are especially crit-
ical to innovative clusters. In my in-
terviews with quad leaders — senior
executives and startup entrepreneurs
alike — the same skills, talents, and
attitudes are repeatedly mentioned.
People who can combine them, and
put them into action, are essential
for the success of a cluster. These at-
tributes include:
• Synthesis. People need to
“connect the dots,” making the rele-
vant context of a complex issue clear
so everyone can move forward.
• Perspective. For sustained
Larry Smarr, director of the Calit2
quad, became a leading figure in
the “quantified health” movement
that cluster engendered.
essayinnovation
4

6. collaboration, people must ana-
lyze and understand the economic
and social environment — the “hu-
man ecosystem” — in which the
quad operates.
• Communication skills. Work-
ing across sector boundaries, col-
laborators must negotiate with and
convince others, building pro-inno-
vation coalitions that can be mobi-
lized for worthwhile goals.
• Intellectual curiosity. People
must be passionate about exploring
questions and alternative solutions
together, making decisions with
urgency but also with an eye to the
long term.
• Empathy. Those working
closely together need the unshak-
able willingness to listen to and un-
derstand others’ point of view, even
when that means operating outside
their comfort zone.
• Substantive knowledge. For
those engaged in technical innova-
tion, superior levels of specialized
knowledge are essential — and
when combined with the other skills
and attitudes, they allow people to
act strategically.
• Cross-sector experience. A
successful quad cluster will feature
many people with experience well
beyond their own silo, preferably in
a different country or economic sec-
tor. This is one positive side effect
of the “revolving door” phenome-
non, in which people can move from
one firm to another. The wider the
range of experiences, the deeper the
empathy and the more finely honed
an individual’s skills of cross-border
communication and negotiation are
likely to be.
Taken together, these attributes
allow people to think, act, and move
across all sorts of borders — insti-
tutional and sectoral, as well as na-
tional and regional.
Making Innovation Sustainable
At the Annenberg School, we have
seen firsthand the value of this type
of collaboration — and the intense,
sustained effort it requires. We are
deeply involved in a quad-based ef-
fort to build an economic cluster in
Los Angeles. To accomplish this,
we are partnering with top busi-
ness leaders, senior city and county
government officials, presidents of
startup companies, local founda-
tions, and think tanks. In our own
university, we have set up new prac-
tices and incentives, including grants
to incipient innovators, courses on
innovation and entrepreneurship,
and the new industry-supported
Annenberg Innovation Lab, where
students from around the university
can come to collaborate and experi-
ment. The laboratory’s 15 corporate
partners include Verizon, Warner
Brothers, and the Brazilian oil com-
pany Petrobras. We are now recruit-
ing museums and other nonprofits.
We have also explicitly set out
to develop competencies — orga-
nizational and personal — that can
make these connections pay off. We
have revamped our staff develop-
ment practices, recruited new pro-
fessors who work in interdisciplin-
ary ways to produce innovation, and
hired several new senior staff people
with experience in non-academic
sectors — people who are good at
building partnerships.
As with all puzzles, the most
difficult part is meshing together
and leveraging the separate pieces
A successful quad system needs
to collaborate on building the
cluster’s capabilities as a whole.
of the model to create an integrat-
ed, mutually reinforcing whole.
The quad becomes successful when
a shared set of values and norms
emerges, forming a common culture
that welcomes innovation. As Barry
Jaruzelski, John Loehr, and Richard
Holman reported in their study of
the business innovation practices
of 2010 (“The Global Innovation
1000: Why Culture Is Key,” s+b,
Winter 2011), the number one cul-
tural attribute cited by successfully
innovative companies is “openness
to ideas from external sources.”
Even as communication tech-
nology makes it easier to connect
with people around the world, the
value of clusters will remain. Re-
gions will continue to vie to become
the next Silicon Valley or Bangalore.
The ones that succeed will be those
that deliberately cultivate talented,
creative people; foster management
reforms that promote innovation;
and build networks among key
leaders. By focusing on those three
leverage points, leaders of a cluster
can bring together the four critical
sectors — public, private, civil, and
academic — nurturing a commu-
nity that becomes, in itself, an en-
gine of sustainable innovation and
economic growth. +
Reprint No. 12103
essayinnovation
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